12th September 2026
For anyone coming towards the end of a fixed-rate mortgage, the past few days have brought an unwelcome surprise. Mortgage rates are rising again.
That might seem strange. The Bank of England's Bank Rate is currently 3.75 per cent, having been held at that level since July. So why are lenders increasing the rates they charge on new fixed mortgages?
The answer lies in an interest rate most borrowers have probably never heard of.
It is called the swap rate and right now it is becoming increasingly important for anyone with a mortgage.
The Bank Rate isn't the whole story
The Bank of England sets Bank Rate. It influences the cost of borrowing throughout the economy, particularly loans and mortgages linked directly or indirectly to variable rates.
But a five-year fixed mortgage is different. When a bank offers to lend someone money at a fixed rate for five years, it needs to protect itself against the possibility that its own funding costs will rise during those five years.
One way of doing this is through the financial derivatives market, where banks can effectively lock in future borrowing costs.
The rates available in this market are known as swap rates. They are heavily influenced by what financial markets think interest rates, inflation and government borrowing costs will look like in the future.
This is why fixed mortgage rates can rise even when the Bank of England leaves Bank Rate unchanged. And that is precisely what has been happening.
The hidden rate has moved
The recent rise in swap rates has pushed lenders to increase mortgage rates. Moneyfacts data reported this week showed the average two-year fixed residential mortgage rate had risen to around 5.65 per cent, while the average five-year fix had reached about 5.70 per cent.
Both were at their highest levels for several months. Several major lenders have also increased rates across parts of their mortgage ranges.
The important point is that this is not necessarily because banks suddenly decided they wanted to make more money from borrowers.
Their own cost of providing fixed-rate money has increased.
So why have swap rates risen?[/ ]
This takes us into the wider economic story.
The first problem is inflation. The Bank of England has held Bank Rate at 3.75 per cent, but it has warned that energy prices remain high and volatile following the conflict in the Middle East.
The Bank expects inflation to rise again later this year as higher energy costs work their way through the economy.
That matters because investors setting long-term interest rates have to consider where inflation might be several years from now, not simply where it is today.
Oil is therefore part of the mortgage story.
Higher oil prices mean more expensive petrol, diesel, transport and many goods. If that keeps inflation higher for longer, markets have to consider the possibility that interest rates will also remain higher for longer.
[b]Then there are government bonds
There is another piece of the puzzle. Government borrowing costs have risen sharply. A recent UK sale of 30-year government bonds, known as gilts, carried a yield of 5.82 per cent, the highest yield on a UK government debt issue since the Debt Management Office was created in 1998.
Ten-year gilt yields have also risen above 5 per cent. That is significant because government borrowing costs form part of the benchmark for borrowing throughout the economy.
When investors demand a higher return for lending money to the government, other borrowers cannot simply ignore it.
Companies pay more. Banks face higher funding costs. And mortgage rates can rise.
So a mortgage borrower can find themselves affected by events in the bond market without ever owning a government bond. Markets have become less confident about rate cuts
There is another important change. Only recently, financial markets were expecting interest rates to continue falling.
That expectation has changed. A Reuters survey of economists this week found that most expect Bank Rate to remain at 3.75 per cent for the rest of 2026, while financial markets have gone further and have been pricing in the possibility of rate increases.
Bank of England Governor Andrew Bailey has pushed back against the idea that a rate increase is inevitable.
He has pointed out that markets are incorporating a risk premium because of concerns about energy prices and the geopolitical situation.
That distinction is important. The markets are not being told that rates definitely will rise.
They are saying that the possibility of higher rates now has to be reflected in the price of money and mortgage lenders have to respond to that.
What does this mean for borrowers?
For somebody still comfortably inside a fixed-rate mortgage, nothing changes immediately. Your rate remains the rate you agreed. The problem arrives when the fixed period ends.
Someone who fixed at 1.5 or 2 per cent a few years ago could find themselves looking at a new rate around 5 per cent or more.
Even a relatively small change can have a substantial effect.
On a £200,000 mortgage over 25 years, a move from 3.5 per cent to 5.5 per cent would increase the monthly repayment by roughly £220.
For a £300,000 mortgage, the difference would be around £330 a month.
Those are not trivial amounts for a household already dealing with higher food, energy and other living costs.
What can borrowers do?
The first thing is not to panic. If your fixed deal is coming to an end, start looking early.
Borrowers can normally arrange a new deal several months before their existing fixed period expires. That gives them the opportunity to secure a rate while continuing to watch the market.
If rates subsequently fall, there may be an opportunity to change to a cheaper deal before the new mortgage begins, depending on the lender and product. That flexibility can be valuable in an uncertain market.
The second thing is to shop around. Loyalty to an existing lender does not necessarily produce the cheapest mortgage. The difference between two apparently similar products can amount to thousands of pounds over several years.
And don't look only at the advertised interest rate. A mortgage at 5.2 per cent with a £2,000 arrangement fee may not be cheaper than a 5.4 per cent mortgage with no fee, depending on the size of the loan and the period involved.
Should borrowers fix for two years or five?
There is no universal answer. A two-year fix gives greater flexibility if interest rates fall substantially.
A five-year fix gives greater certainty if rates remain high.
It is essentially a choice between flexibility and certainty.
Someone whose household budget would be badly damaged by another rise in mortgage costs may reasonably put a higher value on certainty.
Someone who can comfortably absorb changes and believes rates will eventually fall may prefer not to lock themselves in for five years.
The mistake would be to assume that there is one answer that is right for everyone.
What about overpaying?
For borrowers who have spare savings, reducing the mortgage can make sense. If a mortgage costs 5 per cent, every pound used to reduce the debt saves roughly 5p a year in interest, before allowing for the exact mortgage terms.
But there is an important warning. Don't use up all your savings simply to pay down the mortgage.
An emergency cash reserve can be extremely valuable when household finances are uncertain. and some mortgages restrict how much can be overpaid without penalties, so the terms need to be checked first.
The bigger lesson
The recent mortgage-rate rise is a useful reminder that the Bank of England does not control every interest rate in Britain. It controls Bank Rate.
Financial markets determine much of the cost of longer-term money. And those markets are currently worried about inflation, energy prices, government borrowing and the possibility that interest rates may stay higher for longer than previously expected. That is why fixed mortgage rates can rise while the Bank of England is sitting still.
For borrowers, the message is fairly simple.
Don't assume that today's Bank Rate tells you what your mortgage rate will be next year.
Watch the bond market. Watch inflation. Watch swap rates. And, most importantly, if your fixed mortgage is approaching its end, don't leave the decision until the last minute.
The interest rate that borrowers never normally see may already be moving before the rate they do see appears on the mortgage offer.